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To the rescue

Kersten Knipp / ccJune 5, 2014

Since the Muslim Brotherhood was ousted from power in Cairo, the conservative Persian Gulf states have transferred billions of dollars to buoy up the country's economy - in the hope of maintaining stability at home.

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Saudi Arabia's King Abdullah (Archive photo from 2011: AP/dapd)
Image: AP

Twelve billion dollars have already been approved, and a top-up of another $2 billion was added in May. But it looks as if not even this huge sum will be enough to kick-start the faltering Egyptian economy.

That led Saudi King Abdullah to call for a donor conference for Egypt, saying that "friends of Egypt" should stand by the country. The appeal is aimed primarily at the Persian Gulf states, particularly Kuwait and the United Arab Emirates, who have already joined Saudi Arabia in contributing billions of dollars worth of aid.

Newly elected Egyptian President Abdel-Fattah el-Sissi urgently needs this help. The country he is governing is on the brink of total collapse. The budget deficit, according to Germany Trade and Invest, a German economic development agency, is 12.5 percent of gross domestic product. National debt stands at just under 82 percent. Unemployment is at 13 percent, and the rate of inflation comes in at 11 percent.

Abdel Fattah al-Sisi (Photo: Michael Kappeler/dpa)
Egypt's new president, Abdel Fattah el-Sissi, is relying on money from the Gulf to run the economyImage: picture-alliance/dpa

The Gulf states are investing in a country that is currently making headlines because of serious human rights abuses. The international community has strongly condemned death sentences handed down to more than 1,100 Muslim Brotherhood members in the spring, and reports by the newspaper "Egypt Independent" that around 30,000 civilians are currently being held unlawfully in Egyptian prisons.

The media, too, are being put under considerable pressure. Reporters Without Borders said at least 65 journalists were imprisoned after the fall of former President Mohammed Morsi, and that at least 16 are currently in custody.

The Saudi king, however, is not interested in these figures. "Prejudices against Egypt constitute prejudices against Islam and against Arab-ness," he explained when calling for the donor conference. "They also constitute a prejudice against Saudi Arabia. We will not negotiate or discuss this matter."

Saudi rulers unnerved by Twitter

The Saudi royal family has a considerable interest in ensuring the stability of el-Sissi's government, said Christian Koch, director of the Gulf Research Center, a Switzerland-based foundation. The Arab revolutions made the Gulf rulers very uneasy, he added, and afraid that critical voices in their own country could start to question their families' claims to power.

"That is why the rulers want to regain control of events in the region as quickly as possible," he said.

United Arab Emirates Vice President Prime Minister and Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum (C) attend the GCC meeting hosted by Kuwait, December 10, 2013. (Photo: Reuters)
The Gulf states are hoping that shoring up the Sissi government will prevent unrest spreading to their homelandsImage: Reuters

They have reason to be worried, according to Koch. Saudi Arabia is going through a period of upheaval. Almost half the Saudi population is under 20, while the average age in the royal family is over 60. "There's a big generational conflict going on," said Koch.

This, he explained, is also being articulated via new media such as Twitter, which is used by more than 4 million Saudis. There are no taboo topics in cyberspace, and the younger generation is no longer willing to allow the government to set the limits. "It's an active discussion that will also one day lead to changes in the kingdom," Koch said.

This is why the Saudi royal family hopes that el-Sissi's government will not only ensure political stability but will also maintain the ideological status quo. The Muslim Brotherhood called this into question with their social-revolutionary program - by setting up their own schools, for example, where they introduced young Egyptians with the concept of a just social order.

There is no need to fear that el-Sissi and his allies will display these kinds of tendencies. In this respect, his rule contributes - indirectly at least - to tranquility in the Gulf. For his part, el-Sissi depends on support from Saudi Arabia and other Gulf states, as the Middle East expert Stephan Roll from the German Institute for International and Security Affairs (SWP) has written in a new study.

"Without generous financial assistance from the United Arab Emirates (UAE), Saudi Arabia and Kuwait, Egypt would already be bankrupt," he said.

Man sitting alone outside a Cairo restaurant
Tourism is a crucial source of income for Egypt, but visitors have been staying awayImage: Markus Symank

Investment planning

But the Gulf states are not just transferring financial aid to Egypt. They are also investing there, said Roll - to the tune of more than $50 billion (37 billion euros). This would mean they have invested more than the West, whose contribution is currently $46 billion.

El-Sissi wants to put this money towards some major projects that experts regard as controversial. He wants, for example, to build a million new apartments - despite the fact that a very high number of properties in Egypt are already vacant.

The Sissi government does intend to invest some urgently-needed funds in the transport infrastructure. But as the International Monetary Fund (IMF) stated in a report in April, there is also an urgent need for reforms in other areas. "Improving the transparency of public-private partnerships and better public investment planning would help foster more private investment while minimizing associated fiscal risks," it said.

This, however, is not the route Egypt is taking, according to Roll. There is no sign, he said, that it intends to introduce new market regulation or greater transparency in state-directed economic activity.

The billions of dollars from the Arabian peninsula will help to ensure that the country remains solvent in the short term - and thus independent of Western development funds. However, Roll warned that "in view of Egypt's precarious budget and financial situation, not even the Gulf's billions will be enough to achieve an economic turnaround."